Health Insurer Profits Jumped 250% in Last Decade

Profits for the 10 largest U.S. insurance companies jumped 250% between 2000 and 2009 while millions of Americans have lost coverage, according to a report released Thursday by the U.S. Department of Health and Human Services. The report found that the five biggest insurance companies -- WellPoint (WLP), Cigna (CI), UnitedHealth Group (UNH), Aetna (AET) and Humana (HUM) -- saw their profits increase 56% in 2009, a year in which 2.7 million people lost their private coverage.What's more, the report found that the companies combined earned a total of $12.2 billion last year. And lest we forget, on the executive compensation, CEOs of the top five received $24 million on average in 2008, the report said.

Given the timing of the release of the report, was the document an effort by the Obama Administration to increase pressure on the insurance industry as it looks to gain the public's support for health-care reform? It's clear that health insurance companies don't seem to have a lot of friends these days.
Industry Has Drawn Heavy Fire

The industry drew heavy fire earlier this month after insurer WellPoint's Anthem unit moved to increase insurance rates by up to 39% on some individual policies in California. The HHS report showed that such premium hikes are not uncommon, even while insurers post billions in growing profits -- and pay their executives multimillion-dollar salaries.

A brouhaha began two weeks ago when WellPoint's premium hike touched off a war of words with the administration. The White House demanded that WellPoint publicly justify the increases, while WellPoint said it was getting more expensive to provide the coverage.

After the Democrats lost the Senate seat in Massachusetts along with their super-majority, things got complicated. The passage of health-care reform, which was to be Obama's marquee legislation, seemed to slip further away, despite passing two crucial votes in the Senate and Congress. The two different bills need to be reconciled.

Administration Fighting Points

It's no wonder that when WellPoint decided to hike its health insurance premiums for people who buy policies on their own (rather than through their employers) that the administration decided to take issue with WellPoint.

And higher premiums aren't the only problem. The report shows how the amount spent on prescription drugs over the past decade continues to become a smaller piece of the expense pie, while administrative costs -- salaries, administrative expenses and profits -- at insurance companies are becoming a large part. The highly concentrated industry also provided coverage to 2.2 million fewer people in the first three quarter of 2009.

Need For Reform?

The report says the problems highlight the need for reforming the health insurance system. It also says the reform will improve competition, end discrimination, lower premiums and ensure value among other benefits.

But not everybody agrees health-care reform is the answer. For starters, the health insurance industry says that it's not insurance costs, but rather medical care costs, that are soaring. That's what drives premiums up, the industry says. Indeed, U.S. spending on health care continued to grow, increasing 4.4% in 2008 to $2.3 trillion. That 16.2% of gross domestic product -- more than most western economies, with more people uninsured.

Some staunch critics of the health-care reform say the legislation is indeed strong on addressing the insurance problems of many. But they fear it won't address the real reason behind the rising medical care costs, as most of the early proposals to cut costs were stripped away. Regardless, the Obama administration is likely to milk this issue until it's bone dry.